The recent change of governor at Bangladesh Bank has generated considerable debate. Many had expected that Ahsan H Mansur would complete his tenure. That expectation has proved misplaced. This is because political governments generally prefer to place individuals of their own choosing at the helm of ministries, divisions and pivotal institutions. This is a common practice across the world.
However, the position of a central bank governor is a highly specialised and technical one. For that reason, it ought to remain above politics. No government should remove a governor before the completion of the stipulated term. In the United States, for instance, Federal Reserve Chair Jerome Powell cannot be removed easily because of strong legal protections.
In countries such as Bangladesh, democracy is yet to become fully institutionalised. Institutions often remain fragile. Governance frequently depends more on immediate convenience than on established rules and procedures. In such an environment, rules are sometimes bypassed through the exercise of power, and political considerations can overshadow proper processes. Yet adherence to established procedures is essential. Institutions endure on the basis of stability and institutional dignity, both of which are ensured through proper processes.
Leadership changes at a central bank may occur. However, the manner in which they are carried out reflects the strength and maturity of a country’s institutions. The position of governor is not merely a job; it symbolises public confidence in the financial system. Even if a change is unavoidable, it could be handled in a more dignified and respectful manner. A sudden announcement of removal in the media and an abrupt departure undermine the dignity of both the individual and the institution. Even if there are policy disagreements, a governor who has served during a period of crisis deserves a formal and honourable farewell.
Questions and criticism have also emerged regarding the appointment of the new governor. There are discussions about his qualifications, professional background and political associations. Yet decisions of this nature fall entirely within the government’s jurisdiction, since Bangladesh does not generally follow an open and structured recruitment process for such positions.
Independence and accountability must go hand in hand. Without transparency, independence loses legitimacy; without independence, accountability becomes meaningless because decisions would then be shaped by political influence.
Although methods of appointing central bank governors vary across countries, developed democracies usually maintain a balance between professional competence, institutional independence and accountability. A governor requires deep knowledge of economics, particularly macroeconomics, along with professional credibility. Governments typically make the appointments, but legal protections are provided to safeguard the central bank’s independence and to prevent arbitrary dismissal.
In many advanced and emerging economies, three principles are commonly observed. First, governors are appointed through a legal process rather than informal political decisions. Second, they are given a fixed tenure to ensure policy continuity. Third, removal before the completion of the term is restricted or made politically costly. In some countries, parliamentary hearings or legislative confirmation are also required, enhancing transparency.
The underlying principle is straightforward: the central bank must remain accountable to the state while being free from day-to-day political influence. Decisions on interest rates, liquidity management or banking supervision require a long-term perspective and professional judgement. If governors are appointed or removed abruptly without due process, markets may question the credibility of the institution.
Indeed, the credibility of a central bank depends not only on who leads it but also on how its leadership is selected and protected. Transparent procedures, fixed tenures and legal safeguards are not mere formalities. They constitute the foundations of financial stability and institutional trust.
With the appointment of a new governor, it is hoped that the reform initiatives already underway will continue so that the banking sector can serve the economy more effectively. At the same time, there is an expectation that the new governor will safeguard the institution’s independence and integrity.
The violent situation that reportedly arose at Bangladesh Bank is also deeply concerning. A central bank is not simply an administrative office; it represents the country’s financial sovereignty and discipline. If any vested quarter can exert pressure through physical presence, it sends negative signals to both the market and the international community. Such actions undermine not only the authority of the governor but also the dignity of the entire institution. Preserving the sanctity and dignity of national institutions is essential for upholding the rule of law and maintaining public confidence.
The removal of the governor and the appointment of a successor have once again brought the issue of Bangladesh Bank’s independence to the forefront. Central bank independence is vital for economic stability, crisis management and long-term prosperity. After assuming office in August 2024, Ahsan H Mansur attempted to address numerous challenges in the banking sector through independent action.
For years, the sector had suffered from weak governance, rising non-performing loans, regulatory forbearance and politically influenced lending. Addressing such deep-rooted problems required firm and sometimes unpopular decisions. During his tenure, several important initiatives were undertaken. The boards of a number of weak banks were dissolved and reconstituted. Asset quality reviews were conducted in some banks to determine their true financial condition, while reviews of others remain underway.
To tackle rising non-performing loans, an initiative was taken to merge five weak banks into a single stronger institution. Efforts were also launched to recover laundered funds. Amendments to the Bank Company Act and the development of a bank resolution framework were initiated. Steps were also taken to amend and strengthen the Bangladesh Bank Order of 1972, which forms the legal foundation of the central bank’s independence. However, the revised order is yet to be finalised and remains pending at the ministry.
With the appointment of a new governor, it is hoped that the reform initiatives already underway will continue so that the banking sector can serve the economy more effectively. At the same time, there is an expectation that the new governor will safeguard the institution’s independence and integrity. The governor’s responsibility is to ensure that Bangladesh Bank can take decisions on interest rates, inflation control and financial stability free from short-term political pressure.
Countries such as New Zealand, Canada, the United Kingdom, Sweden, Germany, Chile, India and the United States demonstrate that independent central banks can play a decisive role in managing crises. Conversely, the experiences of hyperinflation in Germany during the 1920s, Argentina’s repeated financial crises, Zimbabwe’s economic collapse and the high inflation in the United States during the 1960s and 1970s illustrate the risks of political interference. Independence is therefore not a privilege; it is a necessity for economic stability.
Sri Lanka’s recent experience is also instructive. The country has managed to reduce high inflation and avoid a major collapse in its banking sector through stricter monetary policy, exchange rate adjustments and a coordinated stabilisation programme. This demonstrates how timely, firm and professional decisions can yield positive results.
Nevertheless, independence must be accompanied by accountability. Bangladesh Bank must communicate its decisions transparently to the public, remain accountable to parliament and clearly explain the rationale behind its policy actions. Independence and accountability must go hand in hand. Without transparency, independence loses legitimacy; without independence, accountability becomes meaningless because decisions would then be shaped by political influence.
Ultimately, safeguarding the independence of Bangladesh Bank is not merely about protecting the dignity of an institution. Rather, it is about strengthening the foundation for sustainable growth and shared prosperity for future generations.
* Fahmida Khatun is an economist and executive director of the Centre for Policy Dialogue (CPD).
* The views expressed are the author’s own.